Rent control in Canada and why it’s time for serious debate

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by Ricardo Tranjan

With high rents making headlines every week, we would expect a lively debate on the most direct way to curb the problem: rent control.

Only five provinces control rent increases, with regulations full of exemptions and loopholes. Yet the prevailing view is that we don’t need to discuss the matter because the verdict is already in: all rent controls are always bad.

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That’s not true.

A serious debate on how to make rent control effective while mitigating potential downsides would benefit tenants and the many sectors of the economy for whom high rents are bad for businesses. Such debate is happening in other countries.

In France, President Emmanuel Macron opposed the controls his predecessor enacted but then decided to keep them. In the United States, President Joe Biden’s proposed rent control plan triggered both praise and criticism. In England, new Labour Prime Minister Keir Starmer is facing internal pressure to act on the issue.

To kickstart this much-needed debate in Canada, we need to establish some basic facts.

First, there are many types of rent regulation, which interact with other housing measures, fiscal and monetary policies and the overall economic context.

Rent freezes enacted in the first half of the twentieth century (called first-generation rent controls) slowed down construction — the research is clear on this. But the context matters. Governments used rent freezes during economic depressions and wars, usually without an ending date, which created a lot of uncertainty. At the same time, fiscal and monetary policy prioritized war efforts, making housing one of the many secondary concerns.

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In contrast, today’s rent regulations (called second-generation rent controls) allow rents to keep pace with inflation. In some provinces, rent regulations have rarely changed, creating predictability that one study linked to high housing starts. We also have the federal and some provincial governments incentivizing construction and a comparatively stable economic environment.

In 2020, the Canada Mortgage and Housing Corporation (CMHC) carefully analyzed the impact of rental controls enacted after 1971. The key finding of this study: “There was no significant evidence that rental starts were lower in rent control markets than in no rent control markets.”

In 2023, the International Journal of Housing Policy published a historical analysis that found that rent control negatively impacted construction “in their strict form of rent freezes.” More importantly for current debates, the study found no significant correlation between second-generation rent controls and housing starts.

Other studies that look at second-generation rent controls often present mixed results, inviting policy-makers to weigh the pros and cons of various policies depending on the context.

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That’s what we should be doing.

Instead, findings about rent freezes are often used to kill conversations about rent regulation altogether.

The second fact we must clarify is that the federal government can act on rent regulation.

Most of the controls in place today date back to 1975, when Ottawa strong-armed provinces to enact them as part of an anti-inflation plan. It worked. When inflation hit 12.5 per cent in 1981, rent inflation was 6.4 per cent. In contrast, in the recent high-inflation period, out-of-controls rents pushed inflation up.

The federal government could compel provinces again, for example, by making infrastructure funding conditional on strong rent regulation. It could also impose a rent increase cap, like the criminal rate of interest that limits how much lenders can charge. It can be done.

The third fact is that rent controls benefit tenants and businesses.

Employers have historically disliked high rents as they put upward pressure on wages. High rents also force workers to live further away from work, increasing commutes, lowering job satisfaction and productivity.

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Main street businesses sell less when tenant families spend too much on housing. And their rents are not regulated, either.

The absence of rent control also drastically reduces the risk of real estate investment, making it the best game in town, with comparatively low risk and high returns. Why would banks go back to financing productive economic activity when all everyone wants is a piece of the real estate bonanza?

While the main fight is between landlords and tenants, much more is at stake.

The crux of the question is whether governments should allow the economic cost of high rents to spill over to other sectors of the economy or find smart ways to regulate rent increases.

Isn’t that worth a debate?

Ricardo Tranjan, PhD, is a senior researcher on housing and social policy at the Canadian Centre for Policy Alternatives and author of The Tenant Class. 

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